Canadian dollar heads for third straight weekly gain as yield spreads narrow

Canadian government bond yields moved higher across a steeper curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was up 5.5 basis points at 3.681%, but holding below the two-year high it touched on Tuesday at 3.755%.

"The retrenchment in Fed tightening expectations — which has further to go, we believe — has driven a significant narrowing in front-end spreads since the end of July," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.

• The gap between Canada's 2-year yield and the U.S. equivalent has narrowed by about 17 basis points this month to 120 basis points in favor of the U.S. note.
• "At the margin, Friday's disappointing U.S. retail sales data and the better-than-expected Canadian manufacturing sales data sustain the recent shift in the trend of relative data surprises ... which will also feed through to the exchange rate," the strategists said.
• Canadian factory sales grew 0.1% in June from May, the fifth straight month of gains, while sales volumes were up 1.2%.
• Separate data showed wholesale trade rising by 2.8% in June.
• The U.S. dollar =USD fell against a basket of major currencies after data showed U.S. retail sales unexpectedly declined in July.
• The price of oil CLc1, one of Canada's major exports, was trading 0.8% higher at $81.88 a barrel after the U.S. threatened an indefinite naval blockade of Iran, raising concerns about disruptions to crude supplies from the Middle East.